Big-Cap Medtech Shares Stutter

It looks like the boom times are over for medtech, with 2015 seeing share price losses for several big-cap companies, ending two years of growth across the board.

This could have been a knock-on effect from the biotech wobble. Some had touted medtech as a safe haven for investors, albeit one with potentially lower rewards. But this did not seem to bear out in practice, according to the share indices: while the Nasdaq biotechnology index was up 11% across 2015, the best-performing medtech index could only manage growth of 7% (see tables below).

And in Europe the picture was even grimmer, with the Thomson Reuters Europe Healthcare index flat year on year- echoing 2014, when Europe also lagged the US. But 2014 saw more impressive 22-23% growth in the US indices. The signs are not looking good for medtech.

Some analysts believe that the TAVI market could end up being even bigger than current consensus estimates, particularly if treatment is expanded to include lower-risk patients, leaving room for further growth for Edwards. The group could also benefit from its moves into the transcatheter mitral and tricuspid valve markets – but it will probably take several years to see if these pay off.

Becton Dickinson (NYSE:BDX) shook off an autumn slump to end the year up 11%, helped by its November forecast of better than expected cost savings from its CareFusion acquisition. However, 2016 might not be so rosy: BD’s presence in emerging markets, bigger than many of its peers, could set it up for a fall especially if China's volatility continues.

The biggest loser in 2015 was Baxter, though most of its decline reflects the spin-out of its Baxalta business. With the ex-chief executive of Covidien, José Almeida, now at the helm, there are hopes that Baxter could be more aggressive when it comes to M&A.

Ortho woe

Three out of the five fallers were orthopaedics groups, perhaps reflecting the lower growth prospects in this mature sector. Consolidation continues apace as ortho companies look to deals to bolster their results – the latest was NuVasive’s acquisition of Ellipse (NuVasive’s $380m Magec trick, January 7, 2016).

It was the lack of a deal that contributed to Smith & Nephew’s 3% overall fall after a rollercoaster year. Stryker had been touted as ready to buy the UK group, but as the acquisition failed to materialise S&N’s stock sank.

St. Jude Medical was also caught up in the M&A rumour mill last year, with Abbott the supposed acquirer – speculation it quickly denied. This hurt St. Jude’s stock, as did a disappointing third quarter, particularly for its cardiac rhythm management division. These issues will continue to drag on the company’s results, analysts believe, setting it up for a difficult 2016.

Compared with the previous couple of years, 2015 was tough for medtech. It seems likely that, for some companies at least, things will get tougher still.